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OJK Issued a Draft Rule Imposing New Audit Rotation Requirements

Corporate & Securities Jakarta Client Alert May 2016 OJK Issued a Draft Rule Imposing New Audit Rotation Requirements The Financial Services Authority (Otoritas Jasa Keuangan - "OJK") recently issued a draft rule on the use of public accountants and public accountant offices by entities that are supervised by OJK. The deadline for OJK to receive comments on the draft rule is 20 May 2016. A Wide Range of Entities will be Affected by the Draft Rule The draft rule applies to public accountants and "entities supervised by OJK" as the users of the public accountant services. The draft rule defines "entities supervised by OJK" broadly as entities under the supervision of OJK including those that conduct activities in the banking, capital market, insurance, pension funds and financing sectors, as well as entities that have submitted a registration statement to OJK or entities whose registration statements have been declared effective by OJK. As can be seen above, this draft rule will affect a very wide range of entities (not only public accountants and public accountant offices). From the way it is now defined, the draft rule will also affect: 1. entities that are engaged in the financial services sector (regardless of whether or not they are public companies); 2. public companies; and 3. private companies that have obtained OJK effective statements for their bond offerings. What's New? We set out below the crucial points of the draft rule. Time Limitation/Audit Rotation 1. Currently a company's public accountant (i.e. the signing partner) must be rotated after 3 consecutive years. Under the draft rule, it is proposed that the public accountant will have to be rotated after 5 consecutive years. 2. Currently the public accountant offices ("PA Offices") must be rotated after 6 consecutive years. Under the draft rule, it is proposed that the PA Offices will have to be rotated after 10 consecutive years. Corporate & Securities 2 OJK Issued a Draft Rule Imposing New Audit Rotation Requirements May 2016 3. Currently the audit rotation requirement only applies to Indonesian PA Offices. If an Indonesian PA Office is part of an international audit firm organization ("Foreign AO"), the audit rotation does not apply to the Foreign AO. However, under the draft rule, it is proposed that the audit rotation requirement will also apply to Foreign AOs, which means the Foreign AOs must be rotated after 10 consecutive years. The draft rule still allows a PA Office to do a reorganization in order to be deemed as a new PA Office (and thus the audit period will start from zero again). However, since the audit rotation will also apply to the Foreign AOs, a reorganization of the Indonesian PA Office will not help because even though the Indonesian PA Office is considered as a "new PA Office", the client will not be able to use its services if it remains part of the same Foreign AO. If the draft rule is issued in its current form, it will affect many Indonesian companies supervised by OJK because a lot of those Indonesian companies use the services of Indonesian PA Offices that are part of international audit firm organizations. Currently this is not an issue because the Indonesian PA Office is periodically reorganized (and thus re-sets its audit period for the same client) although it remains part of the same international audit firm organization. But under the draft rule, the reorganization of the Indonesian PA Office will not solve the audit rotation issue. Under the draft rule, non-compliance may result in OJK ordering the "entities supervised by OJK" to conduct a re-audit. Transitional Provision If a client has used one particular PA Office or Foreign AO for more than 10 years, the client is still allowed to use the same PA Office and Foreign AO to do its audit until the financial statements for the financial year ending 31 December 2016. Comments Given the possible significant impact of the draft rule if it is enacted in its current form, perhaps it will be more effective to provide comments to OJK through business associations or industry organizations and councils. The comments for the draft rule can be submitted up to 20 May 2016 to: 1. Ms. Patricia Email: patricia@ojk.go.id Phone: 021-2960 0000 (7791) 2. Ms. Widya Octavia Email: widya.octavia@ojk.go.id Phone: 021-2960 0000 (6535) www.hhp.co.id For further information please contact Rambun Tjajo Senior Partner +62 21 2960 8504 rambun.tjajo@bakernet.com Indah N Respati Partner +62 21 2960 8512 indah.n.respati@bakernet.com Iqbal Darmawan Partner +62 21 2960 8567 iqbal.darmawan@bakernet.com Pramudaya A Oktavinanda Associate Partner +62 21 2960 8559 pramudyaa.a.oktavinanda@bakernet.com Ken Prasadtyo Associate +62 21 2960 8543 ken.prasadtyo@bakernet.com Vera Sihombing Associate +62 21 2960 8552 vera.sihombing@bakernet.com Hadiputranto, Hadinoto & Partners The Indonesia Stock Exchange Building, Tower II, 21st Floor Sudirman Central Business District Jl. Jenderal Sudirman Kav. 52-53 Jakarta 12190 Indonesia Tel: +62 21 2960 8888 Fax: +62 21 2960 8999

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